Daily Insight: Should You Buy Airbnb or DoorDash?

Daily Insight: Should You Buy Airbnb or DoorDash?

Here at MyWallSt, we have an unwritten rule amongst the investing team that we don’t add a newly-listed business to our shortlist unless it has reported on two quarters as a public company. 

The main reason for this is that, when a company first hits the public markets, there tends to be a lot of frothiness around its share price. This can be attributed to things like the roadshow hype that often inflates the valuation to insane heights by the time it actually floats, or the fact that it takes some companies (and investors) a while to get used to the never-ending cycle of reporting quarterly earnings, leading to some choppy days when realities don’t meet expectations. 

In addition to this, the lockup period (where company insiders cannot sell their shares) typically lasts between 90 to 180 days after an IPO. By waiting for two quarters at least, we can avoid the turbulence that usually arrives when founders, owners, and VCs liquidate some of their stakes.

That said, we don’t just totally ignore IPOs either. There are plenty of private companies out there that we watch closely as they make their way to the public markets. In the past few days, two very exciting private companies unveiled their S-1 filings, so let’s dig into them and see what we can find:

Airbnb

For many investors, it feels like Christmas is coming early. The company had been touted as ‘the biggest IPO of 2020’ since the beginning of the year and, one global pandemic notwithstanding, it looks as though they’ll squeeze it in before December 31st.

So let’s talk about said pandemic first. The early days of the coronavirus took a massive toll on the company, forcing them to lay-off close to 2,000 workers and take on significant debt to see them through. The platform has bounced back massively since those frantic days, however, and we recently wrote about how they had slingshotted past the more traditional hotel chains like Marriott in their recovery. 

Airbnb is still hurting though. In 2019, the company reported a net loss of $674 million on revenues of $4.81 billion. In 2020 so far, the company has turned a net loss of nearly $697 million on revenues of $2.52 billion. Indeed, the ongoing pandemic is listed as the company’s very first risk factor, a situation which “will continue to materially adversely impact our business, results of operations, and financial condition.”

As founders Brian Chesky and Joe Gebbia note in the S-1 though, Airbnb was first formed in the ashes of the 2008 Financial Crisis and they believe that the ability of their customers to be both guests and host (i.e., to spend money and make money) will mean the company remains a source of “economic empowerment” for its customers.

Other bright spots in the S-1 include a Gross Booking Value (GBV) of $38.0 billion in 2019 (growth of 29% from 2018) and revenue growth of 32% from 2018.

I know I’m not the only one in the MyWallSt office with an itchy trigger finger ahead of Airbnb’s listing. I agree with Chesky and Gebbia when they claim that Airbnb has “created a new category of travel” and I think that the success they are seeing with staycations under current global circumstances will allow them to pull far ahead of their more traditional competitors by the time normality returns — whatever that might be.

You can definitely expect a blockbuster IPO whenever it does happen.

Check out Airbnb’s full S-1 filing here

DoorDash

Hot off its success in California with the passing of Proposition 22, the food-delivery service founded by Stanford grads released its S-1 to the world last Friday.

The world of meal-delivery is a crowded market, but DoorDash stands out well ahead of competitors like Uber and GrubHub with a U.S. market share of 50% in October versus 26% and 15% respectively.

The company appears to be moving towards profitability, with net losses tightening from $533 million in the first nine months of 2019 to $149 million in the first nine months of 2020. Revenue also increased to $1.9 billion, up from $587 million a year earlier, while the company has more than 18 million customers, 390,000 merchants, and about 1 million delivery workers. 

Despite the restaurant industry being absolutely hammered by COVID related closures, the shift to at-home dining was a real boon for companies like DoorDash. Total order numbers in Q3 of 2020, for example, more than trebled from the same quarter a year ago, showcasing incredible growth for the company. The big question investors will have now is if DoorDash can continue this momentum into the future.

Long-term, DoorDash has designs on expanding beyond meal delivery to becoming a “wallet for the physical world”, meaning that customers could get virtually anything delivered to their door. This appears to be tied up with their DashPass membership program, which indicates a recurring source of revenue that us investors just love to see.

However, the company does note in its risk factors that if its workers “are reclassified as employees under federal or state law, our business, financial condition, and results of operations would be adversely affected.” This is a direct reference to the recent vote on Proposition 22 and the growing calls for tighter regulations on meal delivery companies and the way they treat their employees… sorry, contractors.

DoorDash might have saved itself in California for now, but with President-elect Joe Biden and Vice President-elect Kamala Harris both vocal opponents of Proposition 22, companies like DoorDash might be in for dozens of more battles in the next few months.

Will they be able to spend another $200 million on lobbying? I doubt it.

Take a look at DoorDash’s S-1 filing for yourself here.

JamesJames

Sign up for free to continue reading.